FUNDAMENTALS OF ENTREPRENEURSHIP

TOPIC :- ANALYSIS OF FEASIBILITY STUDY

What is a 'Feasibility Study'
A feasibility study is an analysis used in measuring the ability and likelihood to
complete a project successfully including all relevant factors. It must account for
factors that affect it such as economic, technological, legal and scheduling
factors. Project managers use feasibility studies to determine potential positive
and negative outcomes of a project before investing a considerable amount of
time and money into it.

 Feasibility studies can be used in many ways but primarily focus on

proposed business ventures. Farmers and others with a business
idea should conduct a feasibility study to determine the viability of
their idea before proceeding with the development of a business.
Determining early that a business idea will not work saves time,
money and heartache later.

Importance of Feasibility Studies

Feasibility studies allow companies to determine and organize all the details to make a
business work. A feasibility study helps identify logistical problems, and nearly all
business-related problems and their solutions. Feasibility studies can also lead to the
development of marketing strategies that convince investors or a bank that investing in
the business is a wise choice.

Components of a Feasibility Study

There are several components of a feasibility study:

Description: A layout of the business, the products and services it will offer, and how it
will deliver them.

Market feasibility: Description of the industry, the current and future market potential,
competition, sales estimations and prospective buyers.

Technical feasibility: The details on how a company will deliver goods or services,
including transportation, business location, technology needed, materials and labor.
Financial feasibility: A projection of the amount of funding or startup capital needed,
what sources of capital a business can and will use, and what is the return on
investment.

Organizational feasibility: A definition of the corporate and legal structure of the

business. This may include information about the founders, their professional
background and the skills they possess necessary to get the company off the ground
and keep it operational.

Different Types of Feasibility Study

There are certain important types of feasibility study which are as follow

1. Technical Feasibility Study

The engineering feasibility of the project in viewed in the technical feasibility. Certain
important engineering aspects are covered which are necessary for the designing of the
project like civil, structural and other relevant aspects. Technical capability of the
projected technologies and the capabilities of the personnel to be employed in the
project are considered. In certain examples especially when projects are in third world
countries, technology transfer between cultures and geographical areas should be
analyzed. By doing so productivity gain (or loss) and other implications are understood
due to the differences in fuel availability, geography, topography, infrastructure support
and other problems.

2. Managerial Feasibility Study

Managerial feasibility is ascertained by certain key elements like employee involvement,

demonstrated management availability & capability and commitment. The managerial
and organizational structure of the project is addressed by this feasibility which ensures
that the proponent’s structure mentioned in the submittal is feasible to the kind of
operation undertaken.

3. Economic Feasibility Study

Economic feasibility refers to the feasibility of the considered project to produce

economic benefits. A benefit-cost analysis is needed. Furthermore the economic
feasibility of a project can also be evaluated by a breakeven analysis. In order to
facilitate the consistent basis for the evaluation, the tangible and intangible facet of a
project must be translated into the economic terms. Economic feasibility is critical even
when the project is non-profit in nature.

4. Financial Feasibility
Financial feasibility must be differentiated from economic feasibility. The ability of the
project management to raise sufficient funds required to implement the proposed
project is included in the financial feasibility. Additional investors and other sources of
funds are considered by the project proponents for their projects in many cases. In
such situations feasibility, sources, soundness and applications of these project funds
may be a hindrance. Other aspects of financial feasibility should also be viewed, if
appropriate, like credit worthiness, loan availability, equity, and loan schedule. The
implications of land purchase, leases and other estates in land are also reviewed in the
financial feasibility analysis.

5. Cultural Feasibility Study

The compatibility of the proposed project with the cultural environment of the project is
included in the cultural feasibility. Planned operations should be integrated with the
local cultural beliefs and practices in labor intensive projects. For example what a
person is willing to perform or not perform is influenced by his religious beliefs.

6. Social Feasibility Study

The affect that a proposed project may have on the social system in the project
environment is addressed in the social feasibility. It may happen that particular
category of employees may be short or not available as a result of ambient social
structure. The influence on the social status of the participants by the project should be
evaluated in order to guarantee compatibility. It must be identified that employees in
the particular industries may have specific status symbols within the society.

7. Safety Feasibility Study

Another important aspect that must be considered in the project planning is the safety
feasibility. Safety feasibility involves the analysis of the project in order to ascertain its
capacity to implement & operate safely with least unfavorable effects on the
environment. Mostly in complex projects, environmental impact assessment is not
properly addressed.

8. Political Feasibility Study

The directions for the proposed project are mostly dictated by the political
considerations. This is certainly correct for large projects with potential visibility that
may have important political implications and government inputs. For example,
regardless of the merit of project, the political necessity may be a source of assistance
for a project. On the other hand because of political factors, value able projects may
face uncontrollable opposition. An evaluation of the objectives of project with the
current objectives of the political system is required in the political feasibility analysis
Conducting a Feasibility Study
Step One: Conduct a Preliminary Analysis
The primary purpose of the preliminary analysis is to screen project ideas before extensive
time, effort, and money are invested. Two sets of activities are involved.

1. Describe or outline as specifically as possible the planned services, target markets,

and unique characteristics of the services by answering these questions:

o Does the practice serve a currently unserved need? (e.g., multicultural

populations or age groups who are not currently being served)
o Does the practice serve an existing market in which demand exceeds supply?
o Can the practice successfully compete with existing practices because of an
"advantageous situation," such as better design, price, location, or availability
(e.g., balance assessment and rehabilitation, programmable devices)?

2. Determine whether there are any insurmountable obstacles. A "yes" response to the
following indicates that the idea has little chance for success:

o Are capital requirements for entry or continuing operations unavailable or

unaffordable?
o Do any factors prevent effective marketing to any or all referral sources?

If the information gathered so far indicates that the idea has potential, then continue with a
detailed feasibility study.

Step Two: Prepare a Projected Income Statement

Anticipated income must cover direct and indirect costs, taking into account the expected
income growth curve. Working backward from the anticipated income, the revenue
necessary to generate that income can be derived in order to build a projected income
statement.
Factors that determine this statement are services provided, fees for services, volume of
services, and adjust-ments to revenues (e.g., actual reimbursement levels).

Step Three: Conduct a Market Survey

A good market survey is crucial. If the planner cannot perform this survey, an outside firm
should be hired. The primary objective of a market survey is a realistic projection of
revenues. The major steps include:

 Define the geographic influence on the market.

 Review population trends, demographic features, cultural factors, and purchasing
power in the community.
 Analyze competing services in the community to determine their major strengths and
weaknesses. Factors to consider include pricing, product lines, sources of referral,
 location, promotional activities, quality of service, consumer loyalty and satisfaction,
and sales.
 Determine total volume in the market area and estimate expected market share.
 Estimate market expansion opportunities (e.g., responsiveness to new/enhanced
services).

Step Four: Plan Business Organization and Operations

At this point, the organization and operations of the business should be planned in sufficient
depth to determine the technical feasibility and costs involved in start-up, fixed investment,
and operations. Extensive effort is necessary to develop detailed plans for:

 Equipment
 Merchandising methods
 Facility location and design (or layout)
 Availability and cost of personnel
 Supply availability (e.g., vendors, pricing schedules. exclusive or franchised
products)
 Overhead (e.g., utilities, taxes, insurance)

Step Five: Prepare an Opening Day Balance Sheet

The Opening Day Balance Sheet should reflect the practice's assets and liabilities as
accurately as possible at the time the practice begins, before the practice generates
income.
Prepare a list of assets required for practice operations. The list should include item,
source, cost, and available financing methods. Necessary assets include everything from
cash necessary for working capital to buildings and land. Although the resulting list is rather
simple, the amount of effort required may be extensive.
Liabilities to be incurred and the investment required by the practice must also be clarified.
These items need to be considered:

 Whether to lease or buy land, buildings, and equipment

 How to finance asset purchases
 How to finance accounts receivable

Step Six: Review and Analyze All Data

This review is crucial. The planner should determine if any data or analysis performed
should change any of the preceding analyses. Basically, taking this step means "Step back
and reflect one more time."

 Reexamine the Projected Income Statement and compare with the list of desired
assets and the Opening Day Balance Sheet. Given all expenses and liabilities, does
the Income Statement reflect realistic expectations?
 Analyze risk and contingencies. Consider the likelihood of significant changes in the
current market that could alter projections.
Step Seven: Make "Go/No Go" Decision
All the preceding steps have been aimed at providing data and analysis for the "go/no go"
decision. If the analysis indicates that the business should yield at least the desired
minimum income and has growth potential, a "go" decision is appropriate. Anything less
mandates a "no go" decision. Additional considerations include:

 Is there a commitment to make the necessary sacrifices in time, effort and money?
 Will the activity satisfy long-term aspirations?